Exam 25: Short-Term Business Decisions

Lit Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $780 per table,and takes 8.00 labor hours to manufacture.The large table sells for $1,500,has variable costs of $900,and takes 15 direct labor hours to manufacture.If the company has no sales limitations on either product,it should make and sell as many of the large tables as possible to maximize operating income.

Odin Avionics makes aircraft instrumentation.Its basic navigation radio requires $60 in variable costs and $4,000 per month in fixed costs.Odin sells 10 radios per month.If the company further processes the radio,to enhance its functionality,it will require an additional $28 per unit of variable costs,plus an increase in fixed costs of $280 per month.The current sales price of the radio is $300.The marketing manager is sure that Odin can charge a higher sales price for the improved version.At what sales price level would the new,improved radio begin to improve operating earnings? (Round to the nearest whole dollar. )

Shasta Company is trying to decide whether to continue to manufacture a particular component or to buy the component from an outside supplier.Which of the following is irrelevant with respect to this decision?

Backyard Living sells its barbecue sets for $170 each.Suppose the company incurs the following average cost per barbecue set: * $ 1,800,000 / 75,000 units Backyard Living has enough idle capacity to accept a one-time-only special order from Superstore,Inc.for 2,000 barbecue sets at a sales price of $130 per set.Backyard Living will not incur $2 of variable selling expenses for this order. How would accepting the order affect Backyard Living's operating income?

Route Two Tire Company makes a special kind of racing tire.Variable costs are $200 per unit,and fixed costs are $30,000 per month.Route Two sells 500 units per month at a sales price of $300.The company believes that it can increase the price if the tire quality is upgraded.If so,the variable cost will increase to $240 per unit,and the fixed costs will rise by 25%.The CEO wishes to increase the company's operating income by 30%.Which sales price level would give the desired results? (Round your answer to the nearest cent. )

Freemen Company's western territory's forecasted income statement for the upcoming year is as follows: Freemen Company's management is considering dropping the western territory.This move would be financially advantageous only if the company could eliminate $496,000 of fixed cost.

Spirit Company makes special equipment used in cell towers.Each unit sells for $420.Spirit produces and sells 12,500 units per year.They have provided the following income statement data: A foreign company has offered to buy 85 units for a reduced sales price of $320 per unit.The marketing manager says the sale will not affect the company's regular sales.The sales manager says that this sale will require additional selling and administrative costs,as it is a one-time deal.The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs.If Spirit accepts the deal,how will this impact operating income? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )

In making product mix decisions,when fixed costs are irrelevant,a company should emphasize the product with the highest contribution margin per unit of the constraint.

Which of the following provides a key in analyzing short-term business decisions?

Lighthouse Sail Makers manufactures sails for sailboats.The company has the capacity to produce 35,000 sails per year and is currently producing and selling 30,000 sails per year.The following information relates to current production: The fixed manufacturing costs increase by $102,000 for every 500 units produced beyond the maximum capacity of the plant.If a special pricing order is accepted for 5,500 sails at a sales price of $150 per unit,and if the order requires no variable or fixed selling and administrative costs,what is the effect on operating income?

A company produces 300 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $34 each.Currently,the cost of producing circuits in-house includes variable costs of $28 per circuit and fixed costs of $6,000 per month.The controller says that they could outsource production of the circuit,if it reduces fixed cost more than $1,800 per month.Is this statement true or false?

Brookline Furniture manufactures a small table and a large table.The small table sells for $900,has variable costs of $770 per table,and takes 8.00 labor hours to manufacture.The large table sells for $1,700,has variable costs of $900,and takes 15 direct labor hours to manufacture.The small table has a lower contribution margin per unit,but a higher contribution margin per direct labor hour.

Potlatch Company manufactures sonars for fishing boats.Model 100 sells for $400.Potlatch produces and sells 6,000 units per year.Cost data are as follows: An offer has come in for a one-time sale of 300 units at a special price of $130 per unit.The marketing manager says that the sale will not affect the company's regular sales activities,and that it will not require any variable selling and administrative costs.The production manager says that there is plenty of excess capacity and the sale will not impact fixed costs in any way.What is the effect of this deal on operating income?

Which of the following is always irrelevant to short-term operating decisions?

A customer of Mason Manufacturing has requested a one-time order at a reduced sales price.Before making the special pricing decision,what are three questions that management of Mason Manufacturing must consider?

Star Stationery Company is a price-taker and uses target pricing.Refer to the following information: What is the target full product cost per year? Assume all units produced are sold.

Back Bay Company is a price-taker and uses target pricing.Refer to the following information: What is the target full product cost per unit? (Round your answer to nearest cent. )Assume all units produced are sold.

Fox,Inc.manufactures and sells pens for $7 each.Walton Corp.has offered Fox,Inc.$3 per pen for a one-time order of 3,500 pens.The total manufacturing cost per pen,using absorption costing,is $1 per unit and consists of variable costs of $0.75 per pen and fixed overhead costs of $0.25 per pen.Assume that Fox,Inc.has excess capacity and that the special pricing order would not adversely affect regular sales.What is the change in operating income that would result from accepting the special pricing order?

A company should decide to process its product further if the additional revenue exceeds the additional cost.

Davis Naturals manufactures bulk quantities of cleaning fluids.It currently sells 1,300 containers a month at a sales price of $16 per unit.If a new fragrance is added,$18 per unit could be charged for the improved product.It would cost a total of $1,000 per month to make that alteration.Operating income would ________.